Nairobi writer on Banking, Finance, Technology, and Investments

Category Archives: receiverships

August 2 saw bank closures in Ghana and Tanzania with interesting back stories on the institutions from regulators in both countries.

Tanzania: the regulator Bank of Tanzania (BoT) issued notices that covered two separate cases. BoT took over Bank M, closing it down for three months and appointed a statutory manager (in place of the directors and management of the bank) who will determine the future of the institution. The statement (PDF) read that this was done for reasons that “..Bank M has critical liquidity problems and is unable to meet its maturing obligations. Continuation of the bank’s operations in the current liquidity condition is detrimental to the interests of depositors and poses systemic risk to the stability of the financial system.“. Two years ago, Bank M distanced itself from M Oriental Bank in Kenya.

edit March 2019Azania Bank has completed the acquisition of Bank M following the transfer of the banks’ assets and liabilities. The shareholders of Azania who include PSSSF (52%), NSSF (28%), EADB, and new shareholders including the National Health Insurance Fund (17%) agreed to the takeover and to recapitalise the bank. This is expected to be completed in 45 days with the bank opening in May 2019. – via The Citizen.

The Bank of Tanzania also published an update (PDF) on other banks whose licenses it had revoked in January 2018. Of these earlier bank closures, three of them had been given up to 31 July to increase their level of capitalization and as a result, the BoT had approved a decision to merge one of the affected banks – Tanzania Women’s Bank with another bank – TPB which will result in all its customers, employees, assets, and liabilities transferring to TBP Plc . Meanwhile, two of the other banks, Tandahimba Community Bank and Kilimanjaro Cooperative Bank managed to meet the set minimum capital requirements and have been allowed to resume normal banking operations.

Ghana: Meanwhile in Ghana, the regulator Bank of Ghana revoked licenses of five banks – uniBank Ghana, Royal Bank, Beige Bank, Sovereign Bank, and Construction Bank – and appointed a receiver manager to supervise their assets and liabilities as a combined new indigenous bank, called the Consolidated Bank. All deposits at the five banks have been transferred to the new bank and customers will continue banking at their usual branches which will now become branches of Consolidated. Also, all staff of the five banks will become staff of Consolidated, except for the directors and shareholders of the five banks who will “no longer have any roles”

The Bank of Ghana statement reads that .. “to finance the gap between the liabilities and good assets assumed by Consolidated Bank, the Government has issued a bond of up to GH¢ 5.76 billion. ” and goes on to give some details and background of the problems encountered at the former five, leading to the subsequent bank closures:

uniBank: The Official Administrator appointed in March 2018 has found that the bank is beyond rehabilitation. Altogether, shareholders, related and connected parties of uniBank had taken out an amount of GH¢5.3 billion from the bank, constituting 75% of total assets of the bank. Over 89% of uniBank’s loans and advances book of GH¢3.74 billion as of 31st May 2018 was classified as non-performing, in addition to amounts totaling GH¢3.7 billion given out to shareholders and related parties which were not reported as part of the bank’s loan portfolio. uniBank’s shareholders and related parties have admitted to acquiring several real estate properties in their own names using the funds they took from the bank under questionable circumstances. Promises by these shareholders and related parties to refund monies by mid-July 2018 and legally transfer title to assets acquired back to uniBank have failed to materialize.

Royal Bank: Its non-performing loans constitute 78.9% of total loans granted, owing to poor credit risk and liquidity risk management controls. A number of the bank’s transactions totaling GH¢161.92 million were entered into with shareholders, related and connected parties, structured to circumvent single obligor limits, conceal related party exposure limits, and overstate the capital position of the bank for the purpose of complying with the capital adequacy requirement.

Sovereign Bank: Subsequent to its licensing, a substantial amount of the bank’s capital was placed with another financial institution as an investment for the bank. The bank has however not been able to retrieve this amount from the investment firm with which it was placed, and it has emerged that the investments were liquidated by the shareholders and parties related to them. Following enquiries by the Bank of Ghana, the promoters of the bank admitted that they did not pay for the shares they acquired in the bank. The promoters of the bank have since surrendered their shares to the bank, while the directors representing those original shareholders have since resigned. The Bank of Ghana has concluded that Sovereign Bank is insolvent, and that there is no reasonable prospect of a return to viability.

Beige Bank: Funds purportedly used by the bank’s parent company to recapitalize were sourced from the bank through an affiliate company and in violation with regulatory requirements for bank capital. In particular, an amount of GH¢163.47 million belonging to the bank was placed with one of its affiliate companies (an asset management company) and subsequently transferred to its parent company which in turn purported to reinvest it in the bank as part of the bank’s capital. The placement by the bank with its affiliate company amounted to 86.86% of its net own funds as at end June 2018, thereby breaching the regulatory limit of 10%. Also, the bank has not been able to recover these funds for its operations.

Construction Bank: the initial minimum paid up capital of the bank provided by its promoter/shareholder, was funded by loans obtained from NIB Bank Limited. An amount of GH¢80 million out of the amounts reported as the bank’s paid-up capital and purportedly placed with NIB and uniBank, remains inaccessible to the bank – and the bank’s inability to inject additional capital to restore its capital adequacy to the minimum capital of GH¢ 120 million required at the date of licensing threatens the safety of depositors’ funds and the stability of the banking system.

Advertising: A person without a financial conduct license cannot put out an advertisement for the provision of credit. This also applies to building owners (billboards?), or in newspapers, magazines, radio, television. Also, lender advertisements must be truthful. They cannot be misleading by deception.

Credit Limits – cards/overdrafts: Once a credit limit is approved, a financier can’t reduce the credit limits or decline to replace a lost credit card

Credit Reference: No release of credit reports to unauthorized people

In-Duplum: There is also roundabout way of reintroducing the in-duplum rule. There is a clause that if a loan goes into default, the interest, fees, and other charges to be repaid cannot exceed the balance of the loan on the day it went into default.

Insurance: Loans cannot require a borrower to get insurance from a specific company.

Guarantors: The new laws protect guarantors and requires that they be made aware of all clauses in loan contract before they give guarantees, and with no variation to guarantor terms allowed. This is probably inspired by one guarantor and default dispute involving a cousin of the President that has seen over a dozen cases litigated in several courts over 25 years.

Pre-Receivership Management: The Central Bank of Kenya (CBK) can appoint a person to assist an institution to implement its directives when the CBK believes a bank or its officers are not in compliance with the act. The new law provides tools to assist troubled banks without shutting them down, and CBK can also order some shareholders to wind down their interest in institutions within a specific time.

Statements: Requires all borrowers to be given term sheets before signing for loans, and a copy of the loans contract afterwards. They are also entitled to a free statement every six months and other copies within ten days of a request.

Variations:loan agreements shall not have clauses to vary interest during the loan, or be based on a different rate other than the reference rate of the lender.

Wide Regulation: The new laws will apply to all providers of more than fifty loans and issuer of loans have six months to obtain the new licenses. What of loan apps?

Whether this new law which cracks down on unsavoury banking and consumer finance and behaviors will ease out the 2016 interest rate capping law while assuring parliamentarians who championed the setting of maximum interest rates that bank behaviour will be better-regulated remains to be seen. Also if the clauses will help borrowers who have shifted to other more expensive lending platforms regardless of the consumer finance terms and interest rates charged there.

But the bill also creates a host of new financial regulators including; (i) a Financial Markets Conduct Authority (ii) Financial Services Tribunal (iii) Conduct Compensation Fund Board (iv) Financial Sector Ombudsman (v) an Ombudsman Board who may trip over other existing financial regulators.The bill is in the public participation stage and interested persons can send in feedback on its clauses to ps_at_treasury.go.ke before June 5.

It elicited a lot of comments on the cost of finance offers to Kenyans, since an interest capping law passed in 2016 that restrict banks to lend at a maximum of 14%, the lack of regulation of app loans who may be taking advance of Kenyans by charging usurious rates etc. It also led to a mention of a research report from Micro Save about the digital credit landscape in Kenya that was shared by one of the authors.

The Microsave Report (PDF) titled “Where Credit Is Due: Customer Experience of Digital Credit In Kenya” had lots of insights. It was drawn from feedback from 1,009 farmers located in 50 villages, equally split between Central Kenya and Western Kenya, and also with an equal number of men and women in the study.

At the end of it, the report makes some recommendations to the Communications Authority of Kenya and the Central Bank of Kenya – such as to control the type of messaging sent by text to consumers, and to require app loan companies to share information and to list all defaulters, respectively.

Habits of Borrowers

There is a preference for Chama’ s, SACCO’s and M-Shwari as a source of funding. App loan amounts are too small for significant investments.

Majority of the customers took up loans to smooth consumption, emergencies or to boost business.

They don’t understand terms and conditions of app loans and they don’t understand credit reference.

There are three types of borrowers: repayers (who pay loans on time), defaulters (who don’t understand the consequences of being listed), and jugglers who take both traditional and app loans – but if they are financially stretched, they are more likely to repay the traditional loans.

Customers have learned to game the system through timely repayment of loans and juggling multiple borrowers.

There is no extra “PIN” required to request and withdraw an app loan and some family members have done this in secret leading the phone owner to default on a loan.

Digital credit usage doubled in Kenya between 2015 and 2016, with awareness and usage of digital credit by far lower in rural Kenya.

The simplicity of the loan application procedures matters; too much information requested or if there are too many variables that make it confusing, makes potential borrowers drop off.

Phone Types

Download a loan app or use USSd

App usage is rather low – and this probably related to lower usage of smartphones as their batteries rarely last a full day as compared to cheaper feature phones that retain battery charge for several days of use.

Phones are mainly used for money transfer, deposits, and withdrawals. There is little usage to get information or to browse the internet

64% of respondents in the survey had a basic phone (57% in 2015). Smartphones were 14%, growing slightly and off-setting feature phones which declined slightly to 26%.

One concern is there is little understanding of credit reference bureaus, and of channels for redress of any disputes.

Not all fintech’s report loans to credit reference bureaus.

App loan costs

High loan/interest charges are not a concern as they are comparable to other informal money lenders

At the time of the survey, M-Shwari issued 62 million loans (worth Kshs 1.3 trillion), while Equitel and KCB about 4 million each. In comments to accompany the release of their 2017 bank results last month, KCB had 13 million mobile customers, Equity Bank has 12.1 million, while a CBA statement noted that the bank also serves 33 million mobile savings & loans customers, in East Africa, in partnership with mobile money operators.

EDIT August 15 2018: As part of the transition of Chase to SBM, cheques and EFT’s will be temporarily halted from Thursday 16th August to resume at new SBM counters on Monday, August 20, 2018. Also, it appears, Chase Bank customers will be required to fill out new account opening forms for personal & corporate accounts, wire transfers, chequebooks, cards (debit & credit) and to access digital banking services. This is in line with “know your customer” and to condemn the identity, authenticity and validity of Chase customers being integrated into SBM.

Chase debit /ATM cards cease to work on Friday, August 17 and customers have been asked to collect new SBM cards from their “home” branches. Chase Bank chequebooks also cease effect on that date and customers will be issued with new SBM Kenya chequebooks, with the first being free of charge). Users of the popular Chase Bank Mfukoni app will be prompted to update it and to download a new SBM Kenya app – which has familiar features including airtime purchase, utility bill payments, account statements, chequebook requests and Mobile2bank / M-Pesa transfers of up to Kshs 500,000 ($5,000).

April 18 2018: Yesterday an agreement was signed to conclude the transfer of 75% of the deposits held in Chase Bank that was placed under receivership in April 2016, to the State Bank of Mauritius (operating as SBM Kenya), with the balance remaining at Chase (in receivership) that is being managed by the Central Bank of Kenya (CBK) and the Kenya Deposit Insurance Corporation (KDIC).

The agreement enables customers of Chase Bank to immediately access 25% of their deposits that will be placed in current accounts at SBM, and another 25% that will be placed at savings account at SBM that will earn 6.65% interest per annum. The balance of funds being transferred from Chase will be placed in fixed deposits at SBM that mature over three years with one-third becoming available to Chase depositors on the anniversary date of the agreement for each of the next three years, in what CBK states this represents a substantial resolution of for the depositors of Chase Bank.

SBM Kenya is happy to announce the conclusion of the acquisition of certain assets and assumption of certain deposits with relation to Chase Bank. We're looking forward to building great relationships with all our customers. pic.twitter.com/tzpAlTihWe

SBM Kenya is part of SBM Holdings that is controlled by the Government of Mauritius and has $5.8 billion assets and is the third largest company on the Mauritius stock exchange with a market capitalization of $680 million.

EDIT; July 6: CBK announced that SBM has commenced the acquisition of certain assets and assumption of certain liabilities of Chase Bank in line with the announcement of April 17, 2018, and following approval from the CBK on June 13, and the Kenya’s Cabinet Secretary, National Treasury on June 28, with a goal to complete the acquisition and assumption process on August 17, 2018.

Yesterday, officials from the Central Bank (CBK) and the Kenya Deposit Insurance Corporation (KDIC) met depositors of Chase Bank too outline the way forward following the offer deal between the State Bank of Mauritius (SBM) and the CBK for the acquisition of selected assets and liabilities of Chase Bank that is still in receivership.